MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY -------------------------- LE QUOC THINH DETERMINANTS OF INVESTORS’ SATISFACTION - THE CASE OF FDI INVESTORS IN LONG AN PROVINCE MASTER OF BUSINESS ADMINISTRATION THESIS HO CHI MINH CITY- 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY -------------------------- LE QUOC THINH DETERMINANTS OF INVESTORS’ SATISFACTION - THE CASE OF FDI INVESTORS IN LONG AN PROVINCE Major: Business Administration Major code: 60.05 MASTER OF BUSINESS ADMINISTRATION THESIS SUPERVISOR: DR. DINH CONG KHAI HO CHI MINH CITY- 2012 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT First, I would like to express my gratitude and deepest appreciation to my research supervisor, Dr. Dinh Cong Khai for his intensive support, valuable suggestions, guidance and encouragement during the course of my dissertation. Then, it is my very much gratitude to Mr.
Nguyen Van Hoa – Long An Planning and Investment Service for all the useful information and documents as well as the recommendations he did kindly offered. Also, this research could not be done without the enthusiastic participation of FDI enterprises in Long An who provided me with valuable feedbacks and questionnaire answers. I especially express and thankfulness to the following companies: Formosa Taffeta, Bourbon Ben Luc, Vietnam Australia, Greenfeed, and Golden Bells who helpfully joined my interviews. My sincere thanks are also to all of my classmates, my friends, and especially Mr Dang Huu Phuc for his support and guidance.
Finally, I dedicate this study to my beloved family, my wife, and my little Papaya who have encouraged and supported me during the time. Ho Chi Minh City, November 22, 2011 Le Quoc Thinh i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Abstract Foreign Direct Investment (FDI) is playing important roles in today‟s global integrated economy, especially for developing countries. This study examines determinants of FDI Investors‟ satisfaction in the context of Long An province in order to examine FDI theories in a certain circumstance as well as find out practical reference for Long An province in their FDI attraction policy. The research combines three phases: literature review, face to face interviews, and questionnaire surveys to 142 FDI enterprises doing business in Long An.
Results of the research show that market, labor, infrastructure, and investment policies are significant factors determining foreign investors‟ decision in Long An. Besides, investors who possess different characteristics also have different viewpoints towards the above mentioned determinants. Finally, the study poses out some recommendations for both Long An government for their policy establishment and FDI scholars for further researches on this topic. Keywords: Foreign Direct Investment, Investors’ satisfaction, Determinants of FDI, Long An province, Dunning Eclectic Paradigm ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Table of Contents Acknowledgement.
ii Table of Contents. iii List of Tables. v List of Charts and Models. vi CHAPTER 1: INTRODUCTION .2 Overview of FDI in Vietnam and Long An province .1 FDI in Vietnam .2 FDI in Long An .3 Problem Statement and Research Objectives .4 Research Method and Structure.
8 CHAPTER 2: LITERATURE REVIEW. Review of Determinant of FDI Studies. Dunning‟s Eclectic Paradigm and Determinants of FDI. Determinants of FDI in Developing Countries .1 Population and Sampling.
27 iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Data Collection Process. 32 CHAPTER 4: RESEARCH RESULTS AND FINDINGS DISCUSSION .1 Descriptive Statistic of Sample .2 Exploratory Factor Analysis (EFA) .3 Reliability of the questionnaire .6 Regression of Analysis – Determinants of FDI .7 Normal Distribution Test.8 Determinants of FDI Investors‟ satisfaction and Enterprises‟ Character. 52 CHAPTER 5: CONCLUSIONS AND IMPLICATIONS .1 Implications for Policy Maker in Long An province .2 Implications for Further Research. 68 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com List of Tables Table 3.1 Scale for economic condition factors .2 Scale for government policy factors .3 Scale for Investors‟ satisfaction factors .1 Sample distribution based on FDI enterprises‟ nationality .2 Sample distribution based on FDI enterprises‟ target market .3 KMO and Bartlett‟s Test.4 Total Variance Explained for Economic condition and Government policy variables .5 Rotated Component Matrix for Economic Condition and Government Policy Variables .6 Total Variance Explained for Investors‟ satisfaction variables .7 Component Matrix for Investors‟ satisfaction variables .8 Consolidation of Reliability Analysis – Scale (Alpha) .9 Symbols and coding value of research variables .10 Average of Determinants of FDI .14 One way ANOVA for nationality character .15 Post Hoc Tests - Multiple Comparisons for nationality character .16 Descriptive for nationality character .17 One way ANOVA for target market character .18 Post Hoc Tests - Multiple Comparisons for target market character .19 Descriptive for target market character.
51 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com List of Charts and Models Chart 1.1 Comparison of GDP growth rate between Vietnam and the world .2 Summary of research process and results .1 Regression Standardized Residual.2 Normal P-P Plot of Regression Standardized Residual .3 Regression Standardized Predicted Value. 47 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Determinants of Investors’ satisfaction – the case of FDI Investors in Long An province CHAPTER 1 INTRODUCTION 1. Theoretical background World Trade Organization (WTO) defines Foreign Direct Investment (FDI) as an international business activity occurs when an investor based in one country (the home country) acquires a business in another country (the host country) with the intention to manage that business. The management dimension is what distinguishes FDI from portfolio investment in foreign stocks, bonds and other financial instruments.
In most instances, both the investor and the business it manages abroad are business firms. In such cases, the investor is typically referred to as the “parent firm” and the business as the “affiliate” or “subsidiary” (WTO, 2011a). From another perspective, Cavusgil (2008) considered FDI as an internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, plant and equipment. The above definitions though remain differences, consensus in two basic natures of FDI.
First, there must be the participation of at least one foreign company (the investor) and a host country where the investment locates. In this relation, the investor contributes directly their know-how, technology and other production factors into the host country as a form of a business firm. The second component is the pattern of the ownership. This ownership defines the way investors manages their businesses in host countries in the relation with their mother companies (or parent firms) in home countries.
According to Hill et al (2008), firms have several options to go global. They are, among the most recognized ones, Exporting, Licensing, and Foreign Direct Investment. In this, FDI finds great advantages in preventing the company from transportation cost, trade barriers (in case of Exporting) and from leakages of 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Determinants of Investors’ satisfaction – the case of FDI Investors in Long An province technology know-how, operation and business strategy control problem (in case of Licensing). Shatz and Venables (2000) found two main reasons lead a company to FDI which are to better serve the local market of the host country (horizontal FDI), and is to get lower cost inputs (vertical FDI).
Also from Hill et al (2008), multinational enterprises (MNEs) need to locate their businesses in other markets because of their “Strategic Behavior”. This behavior requires companies to keep pace with their competitors in any business movement which happens when an industry composed of a limited number of large firms (oligopoly). In addition, in today‟s globalized market, FDI provides MNEs ability to access emerging trends, new technologies and the best skills worldwide (Cavusgil, 2008). The benefit for a FDI host country is still controversial.
Although there are remain arguments from anti-globalist who protest against “the invasion” of MNEs to local business, most of the scholars agree on the huge benefit that FDI could bring to the host country (Dicken, 2011). Studies in China showed that FDI promoted income growth and asset formation (Zhang (2001), Ng and Tuan (2002)). Positive impact of foreign investment on labor productivity growth rate could be found in the study of Ramirez (2000) in Mexico. Domestic pharmaceutical companies in India are beneficial from the appearance of foreign companies in this country in terms of investment, competition and operations (Johri (1983) and Kumar (1996), cited by Nayak, 2008) In addition, empirical studies showed positive relations between FDI and economic growth of host country, even in some indirect ways.
Findlay (1978, cited by Hill et al, 2008) postulated that FDI increase the rate of technical progress in the host country through a “contagion” effect from the more advance technology and management practices used by foreign firms. Tsai (1994) found this relationship and that it varies from periods of time and the patterns of the economy. Then, study of Sahoo (2006) on FDI in four countries in South Asia also found that FDI has a significantly positive impact on growth. Hill et al (2008) consolidated at least four 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Determinants of Investors’ satisfaction – the case of FDI Investors in Long An province main benefits for a host country to receive FDI: resource –transfer effect, employment effect, balance of payment effect, and effect on competition and economic growth Understanding the importance of FDI to a host country leads to another important task for scholars and host country‟s policy makers to understand Determinants of FDI.
According to Faeth (2009, pg. 155), “increased globalization over the last two decades has led to strong growth of international business activity and foreign direct investment (FDI), which in turn has led to extensive research on the phenomenon of multinational enterprises (MNEs) and FDI”. Overview of FDI in Vietnam and Long An province 1. FDI in Vietnam Vietnam, a developing country in South East Asia, has been for a long period struggling with poverty and undeveloped economy due to weaknesses of the central- planning economy.
Since 1986, under the economic reform, Vietnam‟s economy has taken great achievements. For many years, GDP growth rates are stable and relatively higher than that of the world (Figure 1. On Jan 11th, 2007, Vietnam officially became the 150th member of World Trade Organization (WTO, 2011b) which marked a milestone for the participation of Vietnam‟s economy into that of the world. Today, international economic integration has become one of the most importation strategies of the country‟s economy, in which Foreign Direct Investment (FDI) attraction has been put on the top priority (Vietnam Ministry of Planning and Investment, 2011a) 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Determinants of Investors’ satisfaction – the case of FDI Investors in Long An province 10 8 6 Vietnam 4 World 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2 Chart 1.
Comparison of GDP growth rate between Vietnam and the world. According to Vietnam Ministry of Planning and Investment (2011b), until June 23, 2011, Vietnam has attracted 12,776 FDI projects with the total registered capital is over 198 billion US dollars (Appendix 1); in this, a very high proportion is for processing and manufacturing industry (50%). In addition, FDI have had great contribution into the development of the country. In the period of 2001 – 2005, this sector contributed approximately 15.
Today, FDI accounts for 100% production in oil drilling, automobile, washing machine, air-conditioner, etc. In addition, FDI gains 60% of steel production, 28% of cement production, 76% of medical care equipment production. Especially, FDI also helps Vietnam penetrate into the world market, improve the capability of production and export, enhance the country‟s technology. It plays an important role in main exporting industries such as footwear and electric part manufacture, etc.
FDI in Long An province Long An province is the gate from Ho Chi Minh City (the central of the economy) to Mekong Delta (the central of rice and agricultural products).